The secondary mortgage market is the market for the sale of securities or bonds collateralized by the value of mortgage

loans. The mortgage lender, commercial b anks, or specialized firm will group together many loans and sell grouped loans as securities called collateralized mortgage obligations (CMOs). The risk of the individual loans is reduced by that aggregation process. These securities are collateralized debt obligations (CDOs), also known as mortg age-backed securities (MBS). The CMOs are sometimes further grouped in other CDO s. Mortgage delinquencies, defaults, and decreased real estate values can make t hese CDOs difficult to evaluate. This happened to BNP Paribas in August, 2007, c ausing the central banks to intervene with liquidity. Mortgage loans that have been locked in with a mortgage originator by borrowers, mortgage brokers or other lenders. A loan will stay in an originator's pipeline from the time it is locked until it falls out, is sold into the secondary mortg age market or is put into the originator's loan portfolio. Mortgages in the pipe line are hedged against interest-rate movements. A mortgage originator's pipeline is managed by its secondary marketing departmen t. Mortgages in the pipeline are typically hedged using the To Be Announced mark et (or, the forward mortgage-backed security pass-through market), futures contr acts and over-the-counter mortgage options. Hedging a mortgage pipeline involves spread and fallout risk. ------------------------------------------------Mortgage Rate Lock: An agreement between a borrower and a lender that allows the borrower to lock in the interest rate on a mortgage over a specified time period at the prevailing market interest rate. The lender may charge a lock fee, which the borrower must pay if he or she does not lock the interest rate. Alternatively, the lender may charge a marginally hi gher interest rate to begin with, just in case the borrower chooses not to lock the interest rate. When a borrower locks in a rate, it should be binding for both the borrower and the lender. However, some borrowers walk away from the agreement if interest rat es fall, and unscrupulous lenders have been known to let lock periods expire if interest rates rise under the guise that the borrower could not process the nece ssary paperwork in time. A lock deposit requirement indicates that both the borrower and the lender inten d to keep the agreement. --------------------------------------------------